The Economic Impact of Streaming Platforms on the Music Industry

Music consumption paths have changed drastically over the last few years. Not so long ago, people had to buy CDs and wait by the radio to record their favorite songs. Nowadays, anyone can access any song with a simple click. This transformation, driven by streaming platforms, has completely reformed the industry.

Streaming platforms offer consumers access to over 100 million tracks for a monthly fee often lower than the cost of one album. Even free versions with some constraints are available, attracting a broader audience to the sector. Consumers' preferences have inevitably shifted, substituting ownership with on-demand access. While this affordability seems advantageous for customers, it raises concerns about whether it devalues music.

According to the IFPI (International Federation of the Phonographic Industry), global recorded music revenues exceeded 27 billion euros in 2023, of which 18.4 correspond to streaming revenues- a 10.4% growth compared to 2022. Additionally, by the end of 2023, there were 667 million paid subscription accounts globally, with an 11.2% increase, while physical sales only accounted for 17.8% of the industry’s revenues.

After nearly two decades of gradual decline, the trend changed and the industry started growing again in 2014, largely due to the emergence of streaming platforms. However, despite data seeming optimistic, the average revenue per user (ARPU) in the digital era is significantly lower than for physical album sales. According to MIDiA Research, the average global subscriber spends around €50 annually, compared to €60–€100 per year spent on physical albums in the late 1990s, which offered higher per-unit margins.

Artists’ remuneration has suffered from this change, and payments per stream are extremely low, with values rounding 0.003 euros. In contrast, CD sales in the 1990s often guaranteed artists €1–€2 per album sold. A key factor is that monopolistic tendencies in the streaming industry often leave artists with little bargaining power. Together, Spotify, Apple Music, Amazon Music, and YouTube Music control over 67% of the global streaming market. This concentration limits competition, making it difficult for new platforms to establish themselves and reducing innovation in pricing or features. This dominance forces artists to accept unfavorable terms, including low per-stream payouts, to ensure the visibility of their work, with not many alternatives for revenue.

Moreover, the pro-rata payment system used by streaming platforms disproportionately favors top-tier artists. Soundcharts reported in 2021 that 90% of Spotify's payouts went to the top 1% of artists, leaving smaller artists to compete for minimal earnings. Even though streaming platforms provide some visibility to small artists, this "winner-takes-all" dynamic exacerbates income inequality, making it difficult for new artists to enter and sustain a career. All these problems raise concerns about the industry's long-term sustainability.

To address these issues, a possible alternative is the "user-centric" payment model, which aims to allocate revenue based on individual listening habits rather than a collective pool. That is, for each listener, the royalties’ portion of their subscription is divided only among the artists they listen to. This could create a fairer distribution, significantly increasing smaller artists' revenue and reducing income disparity in the industry.

The shift to streaming has undeniably transformed the music industry. The challenge of the digital era lies in balancing streaming platforms' revenues and consumers’ evolving preferences with fair artist remuneration. To secure long-term economic sustainability, the industry must focus on more equitable revenue distribution and support smaller emergers to allow for continuous diversity in the sector.